Rethink Possible AT&T INC. 2012 ANNUAL REPOrt 2012 FINANCIAL HIGHLIGHTS CONTINUED MOMENTUM IN GROWTH DRIVERS For full-year 2012, excluding our divested Advertising Solutions business unit, 81 percent of AT&T’s $126.4 billion in revenues came from our key growth drivers, which grew nearly 6 percent. of total revenues grew 81% nearly 6% year over year 19% 28% 53% Voice/ Wireline Data/ Wireless Other Managed IT Services REVENUE GROWTH Excluding Advertising Solutions, AT&T’s full-year 2012 revenues grew 2.4 percent versus 2011. 2012 $126.4B Reported $127.4B 2011 $123.4B Reported $126.7B STRONG EARNINGS GROWTH Excluding significant items, 2012 full-yearEP S grew 8.5 percent year over year. 2012 $2.31 Reported $1.25 2011 $2.13 Reported $0.66 RECORD CasH GENEratiON AT&T generated best-ever cash from operations and free cash flow in 2012, which let us return a record $23 billion in cash to shareowners, including dividends and share buybacks. Free cash flow is cash from operations minus capital expenditures. Free Cash Flow Cash from Operations 2012 $19.4B 2012 $39.2B 2011 $14.5B 2011 $34.7B AT&T Inc. 1 TO OUR INVESTORS ••• A year ago we talked candidly about the issues our company faced and how we intended to address them. Our number one priority was to add spectrum, the airwaves that carry our customers’ mobile communications. We also said we would accelerate our company’s shift to growth businesses. And I made it clear that we would take steps to further improve our capital structure and return value to our shareowners. We took these objectives head-on, executed for our customers, and as a result, we have significantly strengthened how AT&T is positioned for the years ahead. Here’s what we’ve done: • We signed nearly 50 transactions last year • We posted the largest annual increase in total to add new, high-quality mobile capacity — AT&T U-verse TV and broadband subscribers in our including WCS spectrum that previously was not history, bringing our total to more than 8 million. available for mobile broadband. This increased Our U-verse revenues grew 37.9 percent to end the our average nationwide spectrum holdings by year at a $10 billion annualized run rate. a third, which gives us a good runway to deliver • Our most advanced business services, which further innovation and growth. now make up $6.5 billion in annualized revenues, • With this newly acquired spectrum as a also grew at a double-digit clip. foundation, we launched our company’s most • Overall revenues grew to more than $127 billion, comprehensive organic growth plan in several the highest total in our company’s history, and decades. Called Project Velocity IP — VIP, this plan adjusted earnings per share increased 8.5 percent. will let us reach millions more customers with advanced technology and new services. • Cash from operating activities topped $39 billion, up 12.8 percent from the previous year and our In addition to these strategic steps, we added more best total ever. customers to our growth platforms and increased overall revenues, which allowed us to continue • We invested $20.4 billion in capital expenditures robust investment in networks and new products: and spectrum purchases to expand and upgrade • We increased our total wireless subscriber base our network capabilities for customers in the to 107 million and continued to lead all major U.S. United States and around the globe. We more wireless providers in smartphone penetration than doubled the U.S. population covered and average revenues per wireless contract by our 4G LTE network — the industry’s most subscriber. Our mobile data revenues grew advanced, high speed wireless technology — and 17.8 percent to a $27 billion annualized run rate. deployment continues to run ahead of schedule. AT&T Inc. to OUR INvestoRS 2 • We increased our quarterly dividend for the The United States has led the world in this 29th consecutive year and paid out more than revolution, and I’m proud to say that our company $10 billion in regular quarterly dividends — the has been at the forefront — delivering the fast, most in our history. mobile connectivity that’s the foundation for all of this innovation. • We also repurchased 6 percent of our total shares outstanding. Combining dividends and share We’ve come very far, very fast. But we’re still early. buybacks, our company returned $23 billion to To date, the mobile Internet has been defined for shareowners in 2012, the highest total in our history. most of us by what we can do on our devices — so much so that most of us think of the past few years • We refinanced $12 billion of our debt, taking as the smartphone era. advantage of historically low interest rates. But today and in the years ahead, the services • In addition, the investments in our pension fund we provide are poised to play an even more posted solid returns, and we took an important transformative role. We’re now riding the next waves step to solidify our commitment to our employees of innovation, moving into the mobile life era — by seeking to contribute a preferred equity interest where advanced communications connect virtually in AT&T Mobility, our best asset, to our pension everything and where every aspect of our customers’ trust. We expect to gain the approvals needed for personal and work lives are more intelligent and this contribution in 2013. immediate, without regard to device or location. It’s notable that all of this investment has come How our customers buy things, manage their during a time of economic uncertainty. Many health, secure their homes, access entertainment, companies pulled back during this period. But how they learn and make decisions, how they travel we’ve maintained our financial strength and and discover — all this and much more is quickly kept our focus on delivering for customers over being reimagined. the long haul, which has allowed us to invest aggressively through the cycle. For several years Our business customers, too, are finding new ways now, AT&T has invested more capital into the U.S. to speed growth and operate more productively economy than any other public company. with fully connected solutions. For example, there’s tremendous potential to transform our The past few years also have been a time of healthcare ecosystem — and make everything dramatic technological change for our industry. from record keeping, billing and payment to Smartphone adoption in the United States has diagnosis, monitoring and ongoing care faster soared. Tablets and other mobile Internet devices and more efficient. In much the same way, mobile are now on a similar trajectory. The global mobile payments are transforming the way our customers apps ecosystem has exploded into a major industry, conduct commerce — moving from plastic credit far beyond what anyone conceived just a few years cards to secure, personalized wallets accessible ago. And because of these developments, how our on mobile devices. customers live and work has forever changed. to OUR INvestoRS AT&T Inc. 3 Randall Stephenson Chairman, Chief Executive Officer and President The foundation for all of this is smart, seamless Companies such as ours have a responsibility as high speed broadband connectivity — delivered well — to take the initiative and step up to long-term by meshed wireless and wired networks. This is financial commitments. That’s exactly what we’re the heart of what our company provides. doing with Project VIP: So, what’s required to accelerate this • We plan to expand our 4G LTE high speed, wireless new world? data network to cover 300 million people by the end of 2014, 50 million more than our original plan. Capital investment To build the pervasive, smart, high-capacity • To deliver an even better experience, we networks that our customers expect takes plan to make this network more dense through large-scale capital commitments. So, our entire extensive use of innovative small cells in addition industry and its surrounding ecosystem of to traditional wireless towers. suppliers and innovators need tax policies and regulatory approaches that create an attractive • We plan to expand our U-verse customer reach environment for investment. by approximately a third and drive IP broadband AT&T Inc. to OUR INvestoRS 4 AT&T Leadership Team Left to Right: Standing Randall Stephenson, Chairman, Chief Executive Officer and President; John Stankey, Group President and Chief Strategy Officer; Ron Spears, Senior Executive Vice President-Executive Operations; Wayne Watts, Senior Executive Vice President and General Counsel; Cathy Coughlin, Senior Executive Vice President and Global Marketing Officer; Bill Blase Jr., Senior Executive Vice President-Human Resources. Seated John Stephens, Senior Executive Vice President and Chief Financial Officer; Ralph de la Vega, President and Chief Executive Officer, AT&T Mobility; Lori Lee, Executive Vice President-Home Solutions; Andy Geisse, Chief Executive Officer-AT&T Business Solutions; Jim Cicconi, Senior Executive Vice President-External and Legislative Affairs, AT&T Services, Inc.; John Donovan, Senior Executive Vice President-AT&T Technology and Network Operations. connectivity deeper into our wireline network by These investments will provide a much broader year-end 2015, to reach more of our customers platform for a wide range of innovative services where they live and work. and solutions, a number of which are profiled in the following pages. • We plan to deploy high speed fiber connections to 1 million additional business customer locations Accelerate the pace of innovation by year-end 2015. Capital investment and great networks provide the foundation, but the next step is equally important — • Once Project VIP is fully implemented, nearly that’s a mindset and a commitment to accelerate all of our customers will have access to high speed innovation and change.